Kids cry for all sorts of reasons that visitors to the land of parenthood may find peculiar: you put cereal in their yogurt instead of yogurt in their cereal, you refuse to give them their flu medicine as dessert, or you won’t let them roll bottles of antifreeze across the floor at the local superstore. At times like these, you may want to coax them into quiet joy by running to the cookie jar. Or, as the case may be, aisle. Parents, beware. No, this is not a treatise on sugar. It’s simply much more effective, potent, and lasting — as a leader of any kind — to resist the temptation to immediately offer a reward for obedience. Or, for that matter, threaten punishment for the opposite.
The rewards/punishment approach has serious limitations. It works, but only for a short while. Over the long term, alternatively using rewards and punishments to get desired behaviors is risky. It can foster low internal motivation in children and turn out students who chase grades rather than care about learning. Worse, for our purposes, it can shape disengaged, disloyal employees.
My purpose for this article is not to completely redefine the way we do things, but to challenge the status-quo way of thinking, especially the one that exists inside most sales organizations and that is centered on rewards.
Truly happy and successful people excel at what they do not because they are seeking a reward, but because of something deeper and much more personal. Psychology has a lot to offer on this front.
Originating systems that encourage autonomy and mastery for the individual, as well as communication and cooperation for the team, can prove priceless in building a great experience for the employee, and in raising company results beyond expectations.
Pay-for-Performance: How Far Can We Take It?
Inside sales organizations, for example, we are guided by the classic pay-for-performance approach: hit the quota, get your bonus. Miss the target, earn less money.
But how much can you actually improve performance just by paying more? As it turns out, money’s not the end-all and be-all we might perceive it to be. Some readers may be familiar with a situation I’ve encountered a few times: a company finds itself under pressure to meet very ambitious sales goals, and before they know it, get caught in the spiral of awarding progressively larger incentives, just to give their salespeople a nudge. And then another nudge.
Though mild, erratic improvements in behavior may result, and a few people rise to nibble on the carrot, the wheels of financial loss are spinning. Just enough to get by, earn the reward, and go home: that’s the ethos that takes over. In the final analysis, these companies exceed their sales compensation budget and end the year with lagging results. What to do?
When Money Isn’t Enough: Thriving in a Competitive Market
Research shows that, regardless of how much a company increases variable pay for salespeople, at a certain point their performance stagnates; they reach their limits and their efforts no longer justify the reward. Two questions arise: what does inspire growth? And, are organizations offering the right rewards?
Money matters, without a doubt, especially to salespeople. But financial gains cannot replace a healthy, internal sense of worth, the feeling that you as an employee are important to your company, and that your contribution truly makes a difference.
Lack of engagement. Poor collaboration. These are the real troubles in many companies, signaling that – although they work in the same place – people do not feel part of the same team.
Authors across industries have given a lot of time to exploring the strength of intrinsic motivation (the kind that comes from within the individual and consolidates his/her sense of worth) as contrasted with extrinsic motivation (the kind that comes from other people or external factors, such as monetary compensation).
“There is a mismatch between what science knows and what business does. […] Rewards, by their very nature, narrow our focus. […] The solution is on the periphery.” Dan Pink, TED Talk
It’s not that money fails to incentivize people, or that it backfires across the board; the equation is more nuanced. Researchers at the Massachusetts Institute of Technology (MIT) discovered that as long as tasks involve only mechanical skills, bonuses have a significant effect on performance. Once the task calls for even rudimentary cognitive skills, however, the larger the reward, the poorer the performance.
Not only that, but when money no longer looms as a concern and their financial needs are covered, people can finally focus on the work. Whether or not they will, however — much less excel at it — depends upon the environment in which they work. Every aspect of that environment must feed the very human need for autonomy, purpose, and recognition. As Daniel Pink notes, “Management is great if you want compliance, but if you want engagement, self-direction is better.”
In his popular book, To Sell Is Human: The Surprising Truth about Moving Others, Pink embraces this point of view, and even advocates for giving bonuses a far lesser role in motivating employees. This, he alleges, can prevent reps from gaming the system. Instead, focusing on your reps’ need for meaningful work and for mastery can even transform them from adversaries of each other into “agents of their customers” who know what clients expect and who hold the key to making products and services better. In order for user satisfaction to increase, employee satisfaction must be high.
Punished by Rewards
One of my favorite approaches to this mindset was taken by Alfie Kohn in his book, Punished by Rewards. Primarily recognized as a parenting title, the book seriously challenges the way we think about managing people, as well as teaching students.
Kohn never pretends to have all the answers. But he convincingly argues that exclusively relying on incentives to drive results only works in the short run. This viewpoint applies as powerfully to the business world as it does to the domestic one. His ideas about how to create a constructive, inspiring environment and effectively motivate people to put forth their best effort are crucial for success.
a. High pay will not make those who feel estranged from others in the office work efficiently, just as a low salary will not stop those who feel included in a free community from working. Money in itself is not the problem; the problem is that we expect bonuses to directly drive or buy motivation.
b. Rewards diminish employees’ interest in taking chances. When you set a fixed prize, people work towards it; they put their creativity to sleep, and develop routines to chase and reach pre-defined “heights.” This self-limiting cycle prevents them from taking risks or trying out new, innovative methods and solutions that may, if given a chance to breathe, lead them to great professional achievements.
c. Rewards can seriously damage relationships between people. In training sessions, we speak of teamwork, but we destroy it through the reward system. Most companies value team spirit, but their compensation and leadership models do not reflect the principle. When each employee works for his own gain, there will always be opportunities that the company misses. Lack of communication and coordination will leave a lot of money on the table, for the competition to take. Sadly, the only team spirit will then come from collectively kissing it goodbye.
In exchange, here are a few steps that Kohn thinks can help build a participative, highly-performing work model that will make people welcome the Mondays, not just the Fridays of each week:
- Reevaluate performance evaluations. Classic assessments of performance are stressful; employees are judged and categorized. Some companies even try the drastically divisive approach of constantly grouping people by performance level: high, average, and poor. That final one is saved for the lowest performers. Here’s an alternative option: encourage continuous feedback and inspire people to always work on improving themselves.
- Create the conditions for authentic motivation. Change the way you treat, not the way you pay employees. Encourage ownership and participation. Ask for input from employees and apply the good ideas you receive from them.
- Encourage cooperation. For most complex tasks —those requiring creativity —people do better in functional groups than individually. Although collaboration is seemingly a top priority for many firms, it’s talked about more than it’s actually manifested. One obvious option is to incorporate team objectives into your employees’ performance charter.
- Acknowledge people’s need for purposeful, meaningful work. Give your employees a higher goal to aim for and make sure they are aware of it.
- Whenever possible, allow employees autonomy and the freedom to choose what to work on. It’s more likely for employees to be enthusiastic about a task if they are free to choose how to execute it. For the most part, exhaustion is not a direct result of a great amount of work; it’s a result of how controlled and powerless some employees feel. The chance to really have a say in decision making can revive reps’ enthusiasm.
The carrot and stick approach is easy. And it sometimes works. But it’s also demeaning. As a parent and manager, I prefer a way that allows more freedom to grow. Rewards can take many shapes and forms.
Fear of Failure ≠ Desire to Succeed
When planning the reward system, think about the long-term objectives: what do you want to achieve? Do you want immediate results, or a sustainable business plan that your employees are committed to? Monetary rewards may influence your salespeople to hit their target, but they may also keep them from doing more, like developing strong relationships with clients and bringing in more income for years to come.
As Alfie Kohn notes, “psychologically, fear of failure is completely different from the desire to succeed.” This is true for all of us, no matter our age or background. You can use external incentives or restrictions to condition behavior, but it is intrinsic motivation that will really drive long-term success and genuine happiness.
Ultimately, rewards are perceived as punitive, because they too – just like punishments – are an attempt at manipulating the human behavior. We can intend for people to be useful to our organizations. But we cannot force that authentic desire upon them.
7 Steps to Designing an Incentive Compensation Plan that Drives Results
Most companies are dissatisfied with their compensation programs. Read this guide to learn how to design a comp plan that gets results.